UPDATE: HP Splits in Two, Platt Splits Too

Hewlett-Packard Co. today announced a corporate reorganization that will split the company into two independent organizations and usher HP Chairman, President and Chief Executive Officer Lewis Platt into retirement.

The plan calls for the creation of two distinct companies -- one focused on the measurement business, the other on the computing and imaging businesses, Platt said during a press conference today. The companies will be independently managed, each with its own board of directors and its own research-and-development organization, and HP stockholders will hold shares in each company, he said.

The split of the 60-year-old company, which HP's board of directors approved at a special meeting called today, makes sense "given the company's size and (the) diversity of businesses we're in," Platt said.

The new, as-yet unnamed, measurement company will comprise HP's test-and-measurement, components, chemical-analysis and medical businesses. Edward Barnholt, currently HP executive vice president and general manager of the Measurement Organization, has been named chief executive officer of the new measurement company.

Having separate companies will increase accountability and let both entities move more quickly from partnerships to product development to acquisitions, Barnholt said. One top priority "is to create a powerful culture of speed, agility and risk-taking," he said.

HP may issue an initial public offering for 15 percent of the shares of the new measurement company by the end of the year, Barnholt said. In fiscal 1998, HP's measurement business had revenues of US$7.6 billion [B], he said.

Meanwhile, the new computing and imaging company will continue to operate as HP, retaining the HP name and including all of HP's enterprise computing systems, software and services, personal computer, and printing and imaging solutions businesses. A four-person team is conducting a search for a CEO for the new HP, reconstituted as a computing and imaging company.

Platt will continue as HP chairman, president and chief executive officer until the separation plan is completed. Platt said he is approaching his 58th birthday and that it makes sense to tie together his retirement and the reorganization to "get it all done at the same time." He declined to specify a timeframe for hiring the new CEO, saying only that the search team had its first meeting yesterday and was considering both internal and external candidates.

"I will be here providing continuity until we have a new CEO on board and, depending on circumstance, perhaps even beyond that for awhile," Platt said.

Analysts were taken by surprise by the reorganization and Platt's pending departure and were unsure just how voluntary Platt's last act is.

"I think HP just realized that they need something different," said Amir Ahari, senior analyst at International Data Group in Framingham, Massachusetts. "Platt has done a tremendous job (thus far) but that next step he wasn't capable of doing."

"It's hard to say if Platt said to himself that the time had come for fresh blood or if somebody said to him 'it needs fresh blood,'" said Laurie McCabe, analyst with Summit Strategies Inc. in Boston.

Regardless, Ahari agreed with HP that splitting off the measurements business could help HP's computer and imaging business be more responsive and active with its strategy.

"One of the problems I've noted with HP is that they have a time-to-market issue. They've been very slow on execution," Ahari said.

But McCabe said she had never heard anyone at HP complain that the measurements business was an impediment. "I'm not really sure if they've freed themselves of their burdens," McCabe said.

HP, like Compaq Computer Corp. and other computer makers, has to develop an Internet, e-services brand and image to succeed in the future, and the measurements business is hardly a drag on that process, according to McCabe.

"I still have a hard time understanding how this test and measurement thing screwed up the computer business, because it seems like they ran them pretty separately anyway," McCabe said. "Perhaps they have insight that we outside the company wouldn't have."

HP can be reached in Palo Alto, California at +1-650-857-1501 or at http://www.hp.com/.

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